EXERCISE 4-10 Interim Purchase, Partial-Year Reporting Alternative, Equity Method

On October 1, 2010, Para Company purchased 90% of the outstanding common stock of

Star Company for $210,000. Additional data concerning Star Company for 2010 follows:

Common stock $70,000

Other contributed capital 30,000

Retained earnings, 1/1 70,000

Net income 60,000

Dividends declared and paid (12/15) 10,000

Any difference between book value and the value implied by the purchase price relates to

goodwill. Para Company uses the partial equity method to record its investment in Star Company.

Required:

A. Prepare on Para Companys books journal entries to record the investment-related activities

for 2010.

B. Prepare workpaper eliminating entries for a workpaper on December 31, 2010. Star Companys

net income is earned evenly throughout the year. (Use alternative twothe partialyear

reporting alternative.)

C. Repeat part B, but use the full-year reporting alternative.